NRIs are taxable in India in respect of the following:
Income received or deemed to be received in India: and
Income which accrues or arises or deemed to accrue or arise to him in India during such year. The IT Act provides for some specified cases where the income is deemed to accrue or arise in India. Such income is taxed in the hands of non-residents in India, even if it may be received outside India.
Reliefs for foreigners/NRIs
Certain benefits extended to the non-residents under the Indian tax laws are:
·The Act provides that the provisions of the Act or ‘Double Taxation Avoidance Agreement’ (‘DTAA’) between India and the country of the Non-resident, whichever are more beneficial to the taxpayer would be applicable.
Tax incidence on non residents may be lowered, by applying the beneficial provisions of DTAAs:
Scope of income: For certain items of income, scope of income as contained in the many DTAAs is restrictive than the provisions of the IT Act. For example, fee for technical services.
§Concessional rate of tax: DTAAs may provide for a lower taxation rates than the IT Act.
§Credit for taxes paid on doubly taxed income: In case, an item of income is subject to tax in more than one tax jurisdiction, provisions of the IT Act and DTAA provide for ways to avoid incidence of double taxation. Most of the DTAAs entered into by India allow credit for taxes paid (on doubly taxed income) in one jurisdiction against the tax liability in other jurisdiction. For e.g. A resident of India who receives remuneration for services rendered in the UK, would be liable to pay tax on this income in India (as he would be taxed on his global income in India, being a resident) as well as in the UK (as he has rendered services in the UK). As per Indo – UK DTAA, credit for the taxes paid in the UK shall be allowed against the Indian tax payable on such doubly taxed income.
Concessions to Non-resident Indians (‘NRI’) ·Concessional rate of tax has been provided for non residents in respect of the following sums received from the Indian government or an Indian concern:
a)Interest on moneys borrowed in foreign currency @ 20%*;
b)Royalty or fee for technical services @ 10%*;
c)Interest on bonds issued by an Indian company or bonds of a public sector company purchased in foreign currency @ 10%* (plus applicable surcharge and education cess);
* As per the provisions of DTAA, the tax incidence on aforesaid items may be reduced (by applying the concessional tax rates prescribed therein and restricted scope provided for certain items of income).
·Long term capital gain arising to non residents in respect of bonds/ GDR’s of an Indian company or a public sector company is taxed @ 10% (plus applicable surcharge and education cess).
·Capital gains on transfer of bonds/ GDR of an Indian company made outside India by a non-resident to another non-resident is exempt from tax in India.
·Assets purchased in convertible foreign exchange being:
a)Shares in an Indian company;
b)Debentures/deposits of an Indian public limited company; or
c)Any specified security of the Central Government.
Rates of tax
- Income (other than dividend) from above assets is taxed at a concessional rate of 20% (plus applicable surcharge and education cess);
Long term capital gains on transfer of above assets are taxed @ 10% (plus applicable surcharge and education cess).
However, if the net consideration is re-invested in specified assets or any other notified securities within 6 months from the date of transfer, no tax is payable.
No filing of return of Income
No return of income is required to be filed if:
· Total income consists income from specified assets, long-term capital gains on transfer of specified assets; and
·Tax has been deducted thereon.
Exemptions for NRIs
In the context of taxation of non residents the following are some pertinent items of income, which are exempt from tax in the hands of the recipients. It may be noted that there may be other items of income, viz., agricultural income, dividend income, specified capital gains etc. which are exempt in the hands of all tax payers. These have not been considered in this list below: Table of exempt incomes
S No | Section | Nature of income exempt |
1 | 10(4)(ii) | Interest on NRE account to persons who are permitted under Exchange Control regulations or by Reserve Bank of India to maintain such accounts |
2 | 10(6)(ii) | Remuneration received by employees of an embassy, high commission, consulate, etc. who are not citizens of India on a reciprocal basis. |
3 | 10(6)(vi) | Remuneration received by employees of a foreign enterprise, who are not citizens of India subject to the following conditions ·if the foreign enterprise is not engaged in any trade or business in India; ·The stay of the employees in India does not exceed 90 days and ·The payment is not liable to be deducted from the taxable income of the employer in India. |
4 | 10(6)(viii) | Salary received by a non resident individual who is not a citizen of India, for employment on a foreign ship if his total stay in India does not exceed 90 days |
5 | 10(6)(xi) | Remuneration received by a person who is not a citizen of India from a foreign government, during his stay in India, in connection with his training in an establishment owned by specified persons |
6 | 10(7) | Allowances or perquisites given outside India by the Government to a citizen of India for rendering services outside India |
7 | 10(8) | Remuneration received (by an individual deputed to India) from a foreign Government under an agreed co-operative technical assistance programme |
8 | 10(8A) and 10 (8B) | Fees or remuneration received by consultants or their employees, who are non residents in India or are not citizens of India, out of funds received under a technical assistance grant agreement between an international organization and foreign government. |
9 | 10(9) | Foreign income of family members of an employee or consultant rendering services under a co-operative technical assistance programme /agreement. |
10 | 10(15)(i) | Interest, premium on redemption and other payments on securities, bonds, annuity certificates, saving certificates, other certificates and deposits notified by the Central Govt. |
11 | 10(15)(iic) | Interest received by an Individual or an HUF on notified relief bonds |
12 | 10(15)(iv)(fa) | Interest paid by scheduled bank on RBI approved foreign currency deposits, to non resident or not ordinarily resident. |
13 | 10(15)(vii) | Interest on bonds issued by a local authority or State Pooled Finance Entity specified by the Central Govt. |
14 | 10(15)(viii) | Interest received by a non resident or not ordinarily resident on a deposit made in Offshore Banking Unit defined u/s 2(u) of the SEZ Act, 2005 |
15 | 10(16) | Scholarship granted to meet the cost of education |
Assessment of NRIsThe NRIs are subject to assessment under the IT Act, like any person resident in India. Tax Clearance Certificate for NRIs
The requirement of ITCC for an NRI has been substantially curtailed
The income tax clearance certificate (ITCC) is now not required by an NRI who applies for a commercial contract in India.
The persons who are required to obtain ITCC are:
•Where the person is involved in financial irregularities and his presence is required for investigation.
•Where the tax arrears outstanding against him exceed Rs. 10 lacs, which have not been stayed by any authority